ASHBURN, Va. – With another surge in cloud growth looming, local officials in Loudoun County, Virginia are laying the groundwork for the data center industry’s next phase of growth. It’s an acknowledgement that the current building boom – which includes a 650,000 square foot data center building – won’t satisfy the demand for more cloud capacity.
“Over the next couple of months, we will be releasing 43 new data center sites,” said Buddy Rizer, the Executive Director for Economic Development in Loudoun County. “We’ve done a deep dig and worked with all the land owners in Loudoun County to identify these sites. We have land.”The expanded inventory of potential development sites is a response to a data center construction boom in and around “Data Center Alley,” a section of Ashburn adjacent to the Equinix data center campus, the meeting point for many major networks. Of the top 10 data center sites Loudoun County identified last year, seven are either committed or under construction.
“The obvious sites are pretty much spoken for,” said Rizer, who said additional power infrastructure from Dominion Virginia Power has opened land along Route 50 and Route 606 for development. Rizer said there are also some redevelopment opportunities, where owners of sites with existing buildings are open to selling to data center companies.
“We think we’re still only about halfway through our inventory,” he said. “We’re going to eventually get up to about 20 million square feet (of data centers in Loudoun County).”
Epic Leasing in 2016
The Northern Virginia data center market is coming off an epic 2016 in which multi-tenant data center operators leased a record 113 megawatts of capacity, up from 62 megawatts in all of 2015, according to market data from Allen Tucker, leader of the Mid-Atlantic Data Center Solutions practice at JLL.
“Deals are getting bigger,” said Tucker, the keynote speaker at the CapRate Washington D.C. 2017 Data Center Update event last week in Ashburn. He estimated that leasing in the Northern Virginia multi-tenant data center market in 2017 may reach 80 megawatts. While that’s off slightly from the torrid leasing pace in 2016, Tucker noted that “80 megawatts is still greater than any other U.S. market has ever done (in a year).”[clickToTweet tweet=”Data center users leased a record 113 megawatts of capacity in Northern Virginia in 2016, up from 62 MW in 2015.” quote=”Data center users leased a record 113 megawatts of capacity in Northern Virginia in 2016, up from 62 MW in 2015.”]
About 10 megawatts worth of deals were completed in the first weeks of January, Tucker said. “We’re currently seeing about 40 megawatts of demand in the market, plus the 10 megawatts that’s already done,” he said. “There’s some big single tenant enterprises looking for data centers.”
Tucker said Northern Virginia is unique in the level of demand from Amazon Web Services, the cloud computing market leader, which operates at least 25 data centers in North America. Tucker says the huge expansion by AWS last year added about 90 megawatts of leasing of powered shell space – which with the multi-tenant leasing pushed overall leasing to more than 203 megawatts.
Surge in New Construction
Data center developers are working furiously to bring new capacity online, with construction projects underway across Ashburn, Sterling and Manassas in Prince William County.
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That trend is clearly visible to anyone driving down Route 28 in Sterling, where a massive data center from CyrusOne is rising alongside the highway. Believed to be the largest data center structure ever built in Northern Virginia, it will provide more than 650,000 square feet of data center tenant space.
“Our rapid expansion in Northern Virginia is indicative of the growing need for our hyper-speed and hyper-scalable data center solutions,” said Kevin Timmons, the Chief Technology Officer of CyrusOne.
- Sabey Data Centers has just begun leasing space at Phase I of Intergate.Ashburn, the company’s 38-acre campus.
- Infomart Data Centers has completed a renovation of the Dulles Technology Center (a former AOL facility) and is seeking an anchor tenant for the 9 MW first phase.
- Equinix has begun construction on the first data center on a 40-acre expansion campus that will be home to five new data centers.
- DuPont Fabros Technology (DFT) is building its ACC9 data center, and expects to deliver 14MW of capacity in the third quarter of 2017.
- RagingWire has just broken ground on its new 78-acre campus in the heart of Ashburn’s “Data Center Alley” where it can build six new data centers offering up to 2 million square feet of space.
- Digital Realty has acquired 126 acres of land in Ashburn and intends to construct an additional 2 million square feet of space.
New market entrants are also possible. CloudHQ and Lincoln Rackhouse were new arrivals in the Northern Virginia market 2016, and in December were joined by Central Colo, which acquired an interest in the Tyson Technology Center in Tysons Corner. “New players are looking to get into the market,” said Rizer. “We see companies that have been holdouts now deciding to look at Loudoun County.”
Limited Supply in Several Major Markets
“In the next six months, there’s not a lot of capacity in this market,” said Jim Kerrigan, Managing Principal of North American Data Centers. “Absorption’s going to be affected by lack of supply. That’s why Dallas might have a big year. They have a lot of supply there.”
But that can change quickly, Kerrigan said, particularly as data center developers accelerate their construction processes.
“Chicago was the second- largest market for absorption in 2016,” said Kerrigan. “Two of the properties that are responsible for the largest absorption (EdgeConneX and CyrusOne CME) didn’t exist at this time last year.”
In Northern Virginia “construction is not keeping up with demand,” said Rizer. “Demand still outstrips supply. I think we’ll probably get close to (100 MW in leasing) this year.”
Loudoun County: Good Sites Remain
While some developers say the supply of prime land is dwindling, Rizer says Loudoun County has plenty of good sites.
One example is the former Verizon Campus in the heart of Data Center Alley, which has an existing powered shell as well as several parcels of land being marketed for data center use. American Real Estate Partners teamed up with equity partner Davidson Kempner Capital Management to purchase the property from Verizon in 2015, which leased part of the property to continue its operations (including a data center which was recently purchased by Equinix).
Rizer says there are also sites available along the Dulles Greenway, the major toll road running through Loudoun, and expansion by Dominion will support development along Route 50 and Route 606 to the west and south of Dulles Airport. Both DBT-DATA and Amazon Web Services are developing data center sites in this area.
“We’ve learned a lot about delivering the right sites in the right places,” said Rizer, who said the 43 new sites identified by the county offer a variety of infrastructure options in the amount of power and connectivity.
But Rizer says the development pipeline is not slowing down. “Permit activity is at its highest level ever,” he said, noting that 2.5 million square feet of data centers were permitted in 2015, and are coming online in the current building boom. “That’s why certified sites is something we’ll be really focused on in the coming year.”
Data centers contribute $150 million a year in taxes to Loudoun County, Rizer said. “Without the data center community,a fast-growing region like Loudoun County would have much higher tax rates,” he said.
As more states introduce incentives for data center development, Rizer said Loudoun County is monitoring trends and may examine whether additional measures make sense.
“The competition for data center deals has never been tougher,” he said. “We’re going to continue to compete as aggressively as we can.”